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With awful numbers to report just about everywhere, let us take a moment and look at the good news from the FHA.

It turns out that a lot of people want FHA mortgages — no surprise given that the marketplace is not exactly crowded with alternatives. In fact, the FHA program has done stunningly well, a testament to financial sanity.

Since October 1st — the start of the government’s fiscal year — HUD reports that 716,641 borrowers have received FHA loans — that’s up 125.4 percent when compared with the same period last year, and 2008 was a strong year for the FHA.
You can’t be surprised that FHA activity has grown, but the level of growth is stunning. It turns out that a lot of people like loans with fixed rates, no prepayment penalties and no surprise rate increases. Go figure….

And speaking of things which are stunning, let’s now turn to delinquencies and foreclosures.

The Mortgage Bankers Association is out with the latest numbers in the “mortgage whoops” category. Here’s what they show for the fourth quarter of 2008:

___ The delinquency rate for all mortgage loans on one-to-four-unit residential properties rose to 7.88 percent on a seasonally-adjusted basis, up from 5.82 percent a year earlier.

___ The percentage of loans in the foreclosure process at the end of the fourth quarter was 3.30 percent, that’s up from 2.06 percent one year ago.

___ “The combined percent of loans in foreclosure and at least one payment past due,” says the Association, “was 11.18 percent on a seasonally adjusted basis and 11.93 percent on a non-seasonally adjusted basis. Both of these numbers are the highest ever recorded in the MBA delinquency survey.”

___ “The percentage of loans on which foreclosure actions were started during the fourth quarter was 1.08 percent,” says the MBA.

Ah, well, what about FHA loans?

The association reports that 13.73 percent of all FHA loans were late and 2.43 percent were in the process of foreclosure (meaning they have received some kind of foreclosure notice, but the foreclosure start rate for FHA loans remains unchanged at .95 percent.

In other words, FHA loans have a higher delinquency rate but a lower foreclosure rate than mortgages generally. In fact, the foreclosure start rate for FHA loans is LOWER than for loans in general.

These numbers are important because they suggest that FHA borrowers are running into tough times — but that a disproportionate number are getting past their late payments and not being foreclosed.

This is a case where you have to give credit to HUD. It tries to prevent foreclosures, not only because it’s good for homeowners and other humans, but also because fewer foreclosures reduce claims again government insurance pools. And, to this point at least, the record of success looks pretty good.

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Great stats to point out with respect to FHA loans. I estimate that these are about 70%+ of loans here in the Phoenix area right now so it is good to see that their performance is somewhat better in this case.

I tend to think a month-to-month tracking of foreclosure rates is more telling given that the annualized comparisons still show a period not completely beset by foreclosures versus a period that is.

Whenever a mortgage insurance book puts on a huge new volume of loans, the delinquency and foreclosure rates both plummet, until that new cohort of loans has some time to age. Only experience broken out by age-of-loan will give a true picture.

In particular, comparing the FHA total book delinquency and foreclosure rates with the MBA inventory delinquency and foreclosure rates gives a false picture of the relative riskiness of the two groups of loans, since the latter group has a much greater average age.

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